Daily Economic Update: February 19, 2024 (President's Day)

Stocks and bonds are closed.  On this day in history, 1807: Aaron Burr was arrested for treason.  Burr, the VP of the U.S. from 1801-1805 had conspired to create an independent nation in the American Southwest and Mexico.  Burr was acquitted thanks to a narrow definition of treason by Chief Justice John Marshall.

XTOD: I don’t understand people who get bearish and express it by shorting SPX or Nasdaq.

Like God made the perfect shorting vehicle, it’s called Ark Invest ETFs. Like it’s literally called Ark Invest.

XTOD: Yeah, It’s really happening! Coming this summer. Full reveal in May #CFB25

XTOD: There’s a meaningful chance — maybe it’s 15% — that the next move is going to be upwards in rates, not downwards. The  @federalreserve  is going to have to be very careful. 

XTOD: XTOD: Yeah, It’s really happening! Coming this summer. Full reveal in May #CFB25

Daily Economic Update: February 16, 2024

Stocks rose and yields fell slightly as market participants continue to try to make sense of the economic picture. We also have technical recessions in UK and Japan. 

Yesterday's economic data looked mixed as Retail Sales fell more than estimated, Philly Fed and Empire Mfg both looked better than expected with strength in new orders and jobless claims seemed to indicate that you still can't get fired (despite seemingly ever company announcing layoffs).  Industrial Production fell more than expected, but hard to make sense of how much weather impacted the report and Business Inventories rose in line with estimates.

On the day ahead it's PPI as the headliner with appearances by UofM asking people about gas prices.

Does any of this matter?  Apparently there is some AI called SORA that can generate incredible videos from text and people are buying Super Micro Computer, Inc. shares. 

In making sense of all of the various data it seems that the interpretation of the strength of the economy may largely hinge on your interpretation of productivity and good old "R-Star".  One interpretation might be that the post-pandemic economy is fundamentally more productive than pre-pandemic.  That productivity might be driven by things like the rise of WFH which allows some otherwise marginalized workers to contribute (increase labor), perhaps immigration (legal and illegal), and technology.  It might also be that people just had to work more productively out of necessity.  Rising productivity would generally be disinflationary/deflationary and maybe it is indeed playing that role at the moment, but immediately post pandemic it was met with a wall of money via government spending and bank lending while hitting supply constraints. This could explain the rising real GDP and rising nominal GDP coupled with low employment.

I don't really know if the economy is more productive, but the productivity - interest rate - inflation nexus is a tricky one.  What I do think could be possible is that the post-GFC period of low real and nominal growth might turn out to be the anomaly.  If true, the unfortunate thing might be that so many of the current crop of investors and managers has only and ever lived and worked in the low rate, slow growth, "secular" stagnation world of the post GFC.  

A recent post by Dario Perkins on the TS Lombard blog seems to do a good job walking through a framework to analyze the post COVID world, in it:

6. What does this mean for the global economy in the 2020s?

• The Great Moderation is over. Periodic supply shocks will create additional volatility in inflation, which, in turn, will produce larger short-term gyrations in real GDP.
• Inflation will be somewhat higher, but this will be due mostly to upside volatility. It is hard to say exactly how much average inflation will rise, but an extra 100bps is reasonable. The more important point is about the “prevailing tendency” of inflation: we see a world where it is always threatening to break out to the upside rather than sink to the downside.
• Real GDP growth is likely to be higher, too, thanks to tighter labour markets (faster wage growth), a more expansionary fiscal-monetary mix and more rapid investment (in areas such as AI, decarbonomics, defence and the reconfiguration of global supply chains).
• Productivity probably improves in a higher-pressure economy, where companies are forced to work existing resources harder (rather than rely on cheap borrowing and low wages). We are already seeing signs of this in the US. Over time, technological diffusion, which was remarkably poor in the perma-lukewarm economy of the 2010s, should also accelerate, ending the so-called “productivity puzzle” of the post-GFC era.

XTOD: Worth mentioning that 24 years later, Cisco is still below its 2000 high.

XTOD: Rate cuts are feeling very distant. But hey, if stocks are ripping and the unemployment rate stays low, who’s mad beyond real estate developers?

XTOD: ICYMI: I wrote about our national hanging out crisis. In the last 20 years, averaging face-to-face socializing has declined ~30% among adults and ~50% among teens.   We've never been so alone. And it's driving us crazy. https://t.co/hIdXbVPovk

XTOD: Excelling at the small choices that compound over time perpetually leaves you in favorable circumstances.

XTOD: This is absolutely unreal...Abercrombie & Fitch has risen another 15% over the last few weeks and has now ~8x in less than 18 months  It's the best performing stock in the S&P 1500 Index, even outperforming Nvidia $NVDA by a huge margin  Absolutely no one could have predicted this epic turnaround for a brand that was largely seen as outdated  What a story

Daily Economic Update: February 15, 2024

It was a slow day for economic news, so we were left to wonder about this 'serious national security threat' which allegedly has something to do with Russian military capabilities in outer space, while also seeing the reality of dangers down on earth with the shooting at the end of the KC super bowl parade.

Of the little economic news there was both PPI revisions and UK inflation data seemed to give bond bulls some renewed optimism on the inflation front.

Retail Sales and Jobless Claims on the come.

XTOD: AirPods have only been out for 7 years, and the average person now defaults to throwing their headphones in as soon as they’re alone in public.  Walk through the grocery store, everyone has their headphones in. Same with the gym, or just walking around town. 

This feels like a dystopic tech trend that will only accelerate as AI improves and new products like the Vision Pro continue to come out.

XTOD: Vice Chair Barr: "A single bank missing its revenue expectations and increasing its provisioning does not change the fact that the overall banking system is strong, and we see no signs of liquidity problems across the system."

XTOD: Who Had 'Russian Nukes In Space' On Their Election-Year Disruption Bingo-Card?

XTOD: U.S. House Representative, Michael Waltz stated when asked why Chairman Turner decided to make the National Security Threat today Public, “If we don't Deal with this Issue Appropriately, if the Administration doesn't take Firm Action, this could be a Geostrategic Game-Changer. And that is why Chairman Turner took this Unprecedented Step.”

XTOD:  I was laid off from Lyft today. I was the Director of Finance in charge of reporting our margin expansion in our earnings release. 

I accidentally wrote 500 basis points when I meant to write 50 and our stock tanked after we issued the correction. 

Working at Lyft has been the most exciting first job to have after taking only one finance class in college and graduating this past Fall. 

Time for some rest and relaxation and excited for what comes next!

Daily Economic Update: February 14, 2024

I was going to take my wife out for Valentine's Day, but after yesterday's inflation print I just can't afford it. According to an article on Travel and Tour World (whatever that publication is - it still probably gets more readers than this blog, so who am I to criticize) 46% of American's say inflation will affect their Valentine's Day plans, but despite this 33% say it's worth dipping into credit card debt for a Valentine's Day gift.  Another 24% of American's don't plan to spend any money on a gift this year. The data appears to be from this WalletHub survey  

So when's the first rate hike?

It was in July 1996, per the FOMC Meeting Transcript, that the U.S. history of 2% inflation target was born:

MS. YELLEN. Mr. Chairman, will you define "price stability" for me?

CHAIRMAN GREENSPAN. Price stability is that state in which expected changes in the general price level do not effectively alter business or household decisions.

MS. YELLEN. Could you please put a number on that? [Laughter]

CHAIRMAN GREENSPAN. I would say the number is zero, if inflation is properly measured.

This exchange was part of a long Yellen exchange, in which Yellen argued for some positive inflation under the "greasing-the-wheels argument".  

Anyway, the point is, I don't think we're at a point that would meet Greenspan's general, non-numerical criteria, which would be a place where people generally don't think about inflation when making decisions.

 
If, and it's a big if, the Fed is able to do it's job of overseeing the financial system (again, it's a big "if"), then I'll be all-in on rate cuts the day the next CPI, PPI or PCE report isn't made into a national spectacle.  That's the day I will feel confident we have achieved price stability and that rates are risking being restrictive. 

In case you forgot why inflation is harmful, Irving Fisher can remind you here.

Bad day for stocks and bonds yesterday.  Fixed income doesn't like inflation and yields finished the day up 15-20bps with the 2Y at 4.66% and the 10Y at 4.33%.

XTOD: Ok, there’s a lot of bullshit making the rounds. Ex this, ex that, not so bad, blabla… 

This is a terrible print for the Fed. There’s no sugar coating it. They will need to react to it one way or another.  Supercore (that’s core services ex housing) is up a fucking 85 bp m/m. That’s what Fed likes to watch. That’s the largest monthly jump since April 22.  Shelter accelerated. Medical care, recreation and tuition all ripped.   First foregone conclusion: cuts need to be pushed back. For now it’s June for the 1st full cut. Might still be a bit too ambitious.   Second conclusion: now just above 90 bp of cuts FY 24, also way above the Fed guided 75 bp, which is starting to look a bit too optimistic.   Someone check on Claudia Sahm

XTOD: Core CPI comes in hotter than expected, 0.4% in the month of January--which is a 4.8% annual rate.  I'm not a big fan of second derivative forecasting but those of you who are should be worried. Annual rates:  12 months: 3.9% 6 months: 3.6% 3 months: 4.0% 1 month: 4.8%

XTOD: Now is the part where we shift from "See, it was transitory all along!" back to "This is really holding us back, we need to raise the target."  Get ready to start hearing it again, because it's coming!

XTOD: Inflation - it's like trying to lose 20lbs. The first 10 come off like butter. The last ten are a root canal.

XTOD: Because the proper benchmarks for volatility laundered returns are only other volatility laundered returns.

XTOD: I've become convinced that if Biden is going to actually run for president in an electorate where 90% of independents are worried about his age, he should say fuck it and talk about his age *constantly* but only in the context of Trump being 4 yrs younger and 4x crazier

Daily Economic Update: February 13, 2024

Thanks to Bill Ackman I'm trying to determine how my name will determine my destiny...we get it, his name equals his destiny as Billionaire Activist Man.  I asked Ackman what my name means and he replied,  "It's so obvious, Edward Quince equals educating people about the pear shaped fruits of investing."  I didn't have time to ask more, he was too busy on a WhatsApp with 50 other billionaires complaining about Harvard, so I'm left to wonder what he'd come up with for Taylor Swift? 

CPI Day, which will be calculated using updated seasonal adjustments and new weights for 2024.  Will the bond markets and the Fed get numbers that make them happy?  I suppose "good" is continued signs of disinflation and more specifically slowing in services and rents.

Yesterday's NY Fed Survey of Consumer Inflation Expectations showed: "Median inflation expectations were unchanged at the one- and five-year ahead horizons, at 3.0 percent and 2.5 percent, respectively, according to the January Survey of Consumer Expectations. Expectations at the three-year-ahead horizon declined to 2.4 percent from 2.6 percent. Perceptions of credit access improved notably, with a smaller share of respondents saying it is harder to obtain credit now than it was a year ago and a larger share reporting it is now easier. The share of respondents expecting tighter credit conditions a year from now also declined."   

More interesting to me is that there remains a high degree of inflation uncertainty and data showing consumers continue to believe there is a relatively high probability of inflation being above 4% in the next year.  

Other than that you can see if ARM shares continue to pop and see how much further Bitcoin can rise now that it's retook 50K.

XTOD: The fresh MBA grad who just landed a job at McKinsey arriving at your company’s office to present a pitch deck he copied and pasted recommending that your company should simply generate more revenue and cut expenses

XTOD: This week's anticipated data release is the January CPI  Wall Street forecasters expect the core CPI index rose nearly 0.3% from December, lowering the 12-month rate a touch to 3.8%

They see the headline index up 0.15% from November, dropping the 12-month rate to 2.9% (vs 3.4%)

XTOD: “Do we want NATO to pay more? Of course we do. But the last thing we’re going to do is side with a thug. Keep in mind, Putin kills his opponents,” Ambassador  @NikkiHaley   tells 

@FerroTV ,  @lisaabramowicz1  and me.

XTOD: FanDuel says it took in more than 14 million bets on the Super Bowl. Total amount bet? $307 million.

XTOD: If you’re glued together and honorable and get up every morning and keep learning every day and you’re willing to go in for a lot of deferred gratification all your life, you’re going to succeed. — Charlie Munger

XTOD: The Nvidia run up is funny but it’s even more funny when you remember Cathie Wood sold right before

Daily Economic Update: February 12, 2024

It was between this or the many memes of Kelce yelling at Reid

Why the day after the Super Bowl is not a national holiday remains a mystery. 

On Friday the S&P closed above 5K for the first time ever.  Yields continued to move higher over the last week. The 2Y is close to reclaiming 4.50% as the timing of rate cuts continues to get pushed back, while the 10Y is 4.18%.

The week ahead features CPI on Tuesday and Retail Sales on Thursday as highlights.

Today: fedspeak

Tue: CPI

Wed: Valentine's Day 

Thur: Retail Sales, jobless claims, 

Fri: Housing starts and building permits, PPI and UofM survey

XTOD: Heard from our NYC office that they went out to get bagels as a team today, some new analyst ordered a scooped bagel and the rest of the deal team beat the shit out of him and now we have an incoming lawsuit

XTOD: We’re all living through a great enshittening, in which the services that matter to us, that we rely on, are turning into giant piles of s**t. It’s frustrating. It’s demoralising. It’s even terrifying https://on.ft.com/48bnYyv

XTOD: "Margin of safety—you can also call it room for error or redundancy—is the only effective way to safely navigate a world that is governed by odds, not certainties. And almost everything related to money exists in that kind of world."  — Morgan Housel

XTOD: Positioning over predicting.

XTOD: "Then I get that feeling...which is, 'I don't care who reads this, I don't care what happens to this, this is mine, no one's taking it away from me, I am doing this at the expense of all other things.'"  (

@SomanChainani   on the  @tferriss podcast)  Beautiful. This is the definition of authenticity.

XTOD: Macro is Hard   "It’s fine to have views on the economy. It’s fine to listen to other people’s views on the economy. It’s rarely helpful to act on those views when it comes to your portfolio."  https://buff.ly/3Uz4XTm 

XTOD: Great summary by  @I_Am_NickBloom  “So the big-name CEOs and Politicians claiming WFH is damaging growth have got it 100% wrong. WFH is likely powering the current economic boom by increasing labor supply and productivity, while also improving personal and family time.”  Women plus flexibility is profitable. Who knows what I might have accomplished if I have had flexibility during my career. It would have been a lot easier and humane. TY Nick. 👏paying it forward in every way I can.

XTOD: Chernobyl's mutant wolves appear to have developed resistance to cancer, study finds. The wolves are exposed to cancer-causing radiation as they roam the wastelands of the abandoned city - with researchers finding part of their genetic information seems resilient to increased risk of the disease. https://news.sky.com/story/chernobyls-mutant-wolves-appear-to-have-developed-resistance-to-cancer-study-finds-13067292

Daily Economic Update: February 9, 2024

Another relatively strong/low jobless claim report, despite the incessant headlines of layoffs.  Yields rose a few bps as the S&P crossed but couldn’t hold 5K.   The 30Y Auction was also strong, marking a strong week for demand for U.S. govt. debt.  Otherwise Chinese deflation is out there and for now it doesn't seem like the decline in Chinese equities and the real estate crisis is at a level yet that will lead to any meaningful global risk aversion.  Perhaps the bigger question is what will the impact of ailing U.S. CRE (particularly office) be on some foreign banks and investment firms?

I was wondering why I couldn't get Snoop Dogg's cereal at Walmart, per CNBC: "According to the lawsuit, when it was placed on shelves, Snoop Cereal was popular and sold well. However, the products were quickly taken off the shelves, leaving shoppers wondering where to find them, the suit says."

XTOD: Have a buddy who is feeding workplace conflicts into ChatGPT and asking it to analyze the situation and propose his course of action based on the 48 Laws of Power 

He is definitely going to either be promoted or fired in the next 6 months. Excited to find out which it is

XTOD: Fed officials love to pretend they don’t wade into fiscal matters, but the Fed paying interest on reserves (IOR) *is deficit spending*. Hell, all Fed spending goes right out of the budget via reduced remittances. Not to mention the rate hikes themselves, obviously.

XTOD: Monetary & fiscal policy is linked via a consolidated government budget constraint. But IOR is not in itself  “deficit spending.” (It’s possible to pay IOR and run a surplus). Comments on post below are bizarre.

XTOD: MMTers: "We never said deficits don't matter...they can cause inflation if they push the economist past capacity" 

Congress: Here's $4 trillion over 2 years to push the economy past capacity. 

Economy: Here's 7% inflation. 

MMTers: "Look at this supply shock"

XTOD: Choose a career you love and you’ll never work a day in your life because that field probably isn’t hiring.

XTOD: Watching the Presidents press conference in real time, responding to the special prosecutor’s report alleging cognitive decline.  This was the worst possible moment to confuse Egypt with Mexico while answering a question on Gaza. 

Daily Economic Update: February 8, 2024

New all-time highs on the S&P.  The earnings picture to date has been pretty solid.  Yields ended the day slightly higher despite regional bank fears. The 10Y Treasury auction was strong with the largest stop thru when issued since last February.  Fedspeak generally held the line on the desire to see more evidence that inflation will get back to target before initiating cuts.  Continue to see various takes on Powell's 60 Minutes appearance, specifically around his calling the national debt unsustainable.  Those takes include views from the MMT crowds view that there is nothing unsustainable about the debt (but that the Fed should cut rates), and views of certain famed investors clamoring for how the Fed needs to cut rates to keep the deficit from continuing to grow (not to mention how they could really use low rates to sustain certain investments). 

I obviously don't know Powell (I once rode an elevator with Bernanke), but I wonder if he would agree with this quote:

“I define central bank independence in one sentence, it's the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt.” – Peter Stella 

On the day ahead it's jobless claims and the 30Y auction. Other than that I guess we'll see if the Tucker-Putin interview drops. 

XTOD: One of the biggest mistakes by finance idiots* is to conflate tail risk awareness with bearishness. 

Believing in Black Swans ≠ Permabears.  * Short for fucking idiots.

XTOD: BREAKING: The winner of the Nevada Republican Primary election is literally "None of These Candidates."  Over 61% of the votes are for "None of These Candidates."  This is double the 32% that Nikki Haley, the second place candidate, received.  Donald Trump was not on the ballot.

XTOD: Yet another example of monetary policy in action - rich people (credit scores >760) were taking out massive amounts of mortgage debt to bid up the price of housing until the Fed started tightening policy in early-2022 https://newyorkfed.org/medialibrary/i

XTOD: My undergraduate thesis was on this very question.  I argued that religions can be modeled as providers of social insurance, and that the US secularized after Europe due to our under-developed welfare state.  To test this, I showed that the post-'90s "secular boom" was associated with Medicaid expansions in prior years at both the state and census division level, particularly the '80s expansion to uninsured kids and the explosion in federal payments to charity hospitals after the '86 budget act. 

In essence, it seems like Medicaid crowded-out the social insurance function of religion for many parents, leading to a cohort of kids who grew up with weaker affiliation. As a secondary effect, the growth in federal payments also induced many sectarian hospitals to be bought-out by secular networks. There's a sizable literature showing a similar relationship holds cross-nationally as well as in micro, such as Dan Hungerman's work showing the negative impact of welfare expansions on church donations.  This was my first empirical paper and, while I remain concerned about spurious correlation, I think there's more than enough "there there" to at least make this mechanism plausible. I would love for someone with better stats abilities to try to replicate it using the latest data, as I agree with David that it is an important and still under-theorized question.

XTOD: The 32-year-old banker, whose satirical alter ego has gained a cult-like following on Instagram, reveals his identity in an FT interview: https://on.ft.com/3OuCiuH